Writ Petition Dismissed – Bona Fide ITC Head Mistake Does Not Nullify Audit Demand

Case Details

• Case Name: Saluja Motors Pvt. Ltd. v. State of Himachal Pradesh & Others

• Court: High Court of Himachal Pradesh, Shimla

• Petition Number: CWP No.2293 of 2024

• Judgment Date: 21.04.2025 (Reserved on 09.04.2025)

• Category of Dispute: Input Tax Credit (ITC) – Wrong Head Claim (IGST vs. Cess)

• Relevant Sections:

  • Section 65 (Audit), Section 73(1), Section 74(1), Section 50, Section 140 – CGST Act, 2017

  • Rule 142 – CGST Rules, 2017

Facts of the Case (Paras 2–9)

1. The petitioner, a dealer of Ford India Pvt. Ltd., wrongly availed ITC by interchanging IGST and Cess heads while filing GSTR-3B for Feb–March 2018. (Para 2–5)

2. Excess ITC of Cess (₹31.71 lakh) was offset by short ITC of IGST, causing no revenue loss. (Para 5)

3. Audit under Section 65 (2017-18) revealed excess availment of Cess ITC, leading to SCN in Form GST DRC-01 (11.08.2023) proposing ₹31.67 lakh recovery. (Paras 6–7)

4. Despite petitioner’s reply (09.09.2023) claiming clerical error, adjudicating authority confirmed demand of ₹35.95 lakh with interest and penalty. (Para 9)

Question(s) in Consideration (Paras 10–11)

1. Whether issuance of only a summary SCN without the main notice under Section 74 read with Rule 142 invalidates proceedings?

2. Whether clerical error in shifting ITC between IGST and Cess heads, without revenue loss, absolves the petitioner of liability?

Observations of the Court (Paras 13–22)

1. Statutory procedure requires both notice and summary (DRC-01). However, petitioner had received the full audit report, disclosing discrepancies. (Para 13–17)

2. Non-issuance of main SCN was a procedural irregularity, but no prejudice was caused since petitioner knew the case it had to meet. (Paras 16–19)

3. Citing State of U.P. v. Sudhir Kumar Singh (AIR 2020 SC 5215), Court held that violation of natural justice must cause prejudice; otherwise, proceedings are not vitiated. (Para 20–21)

4. Since petitioner did not deny the discrepancies, demand could not be nullified merely on procedural lapses. (Para 22)

Judgment of the Court (Para 23)

• The writ petition was dismissed.

• Demand of excess Cess ITC (with interest & penalty) upheld.

• Pending applications also dismissed.

Between Fine Lines (Simplified Outcome in 5 Lines)

• Clerical ITC error (IGST claimed under Cess) does not wipe out liability.

• Revenue neutrality was not accepted as a defence.

• Non-issuance of proper SCN (Form GST DRC-01) did not prejudice petitioner since audit report was supplied.

• Natural justice violation must show actual prejudice to succeed.

• Petition dismissed; demand with penalty sustained.

Summary of Referred Cases

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